Are you GST Ready?
GST is seen as the single most important tax reform initiative in India since independence and is expected to provide a significant boost to investment and growth of the economy. It will have a significant impact on all aspects of businesses operating in the country.
GST would bring in significant change in doing business. Advocacy for best practices, gearing up for changes in processes, training of personnel and readying the IT systems for being GST compliant are the key areas.
With the government committed to introducing GST, companies need all the lead time that they can get to make and test system changes, so that they are not left behind to catch up. Depending on the size of the company or the sector in which it works, the changes may take even more time.
In order to prepare for the implementation of GST, the companies need to act now: from tracking GST policy development and fully understanding its implications to scenario planning and preparing a transition roadmap.
The companies are required to undertake following in order to be GST Ready:
GST IMPACT ANALYSIS
GST will be significant change from current regime of multiple Central & State tax levies like Central Excise duty, Service Tax, VAT, Entry Tax etc. Businesses could therefore start with revisiting their existing business processes and examining the current indirect tax costs and the possibility of mitigating some of these costs under the GST system.
GST impact assessment on any business would involve a simultaneous analysis of changes in tax rates vis-à-vis credit flows. Preparatory ground work could include collating historic procurement/ distribution data and the tax costs/ credits presently incurred by the business.
This is likely to ensure easy population of the GST rates/ credits and an efficient comparison of the present tax costs vs. potential GST costs. It will hereby help in analyzing the potential GST impact and expedite employment of requisite measures to maximize the positive effects of GST.
Keeping in view the above an entity may need to decide on the followings:
- Domestic Supplies Vs Imports
- In House Vs Contract Manufacturing
- Own Vs Outsource decision for services
- Intra State Vs Inter State Procurements
- Pricing Strategies
- Warehousing / Stocking Locations
- Direct Sales Vs Stock Transfers
Pertinently, a GST impact analysis could lead to implementation of measures that minimize tax costs, improve working capital efficiency, and more importantly, revise the product price. Needless to say, such an analysis and consequent downward revision in price can be crucial business advantage given the current competitive market scenario.
The industry will immediately require assistance in terms of registration under the new law, details and mechanics of records to be maintained. Needless to say regular services such as payment of taxes, filing of returns and audit-related services would continue. Advisory services will also be required in dealing with unique issues such as inter-state supply of services (such a concept will be in play for the first time for service providers), inter-state supply of intangibles and valuation of branch transfers.
There would be numerous transitional issues going into the new law such as treatment of existing stock and credit issues. Services will also be required in preparing Standard Operating Process (‘SOP’) for businesses under the new regime.
The GST would require advisory in making appropriate changes in IT systems viz. Master Records and Transaction Records. The following are the illustrative list of customization required in systems:
Outputs to be aligned with GST
- Output Invoicing
- Purchase Orders
- MIS reports
- Declaration Forms
- Stock records
The master data needs to be aligned with with GST
- Supplier registration numbers
- Customer registration numbers
- GST Rates master
- Credit eligibility master viz. SGST, CGST, IGST
Transactions to be aligned with GST
- Inventory valuation modules
- ITC registers in GST viz. SGST, CGST, IGST
- MIS reports
Introduction of GST will lead to rise in training requirements–
(a) for the industry
(b) for tax professionals.
A three-fold training structure can be adopted i.e. training to (1) top management of firms / business owners, (2) process owners and (3) taxation / accounting team. Training would be required in first educating the business owners and higher management on the likely impact of GST on their business and thereafter updating the company personnel with nuances of GST along with regular update sessions.
Since proposed GST is considerably different from Existing Indirect Tax Regime, it is important that massive training exercise is undertaken by the company across all levels so that employees are well versed with the new regime. . It is important that the companies may conduct various tax handholding sessions with ground level personnel so that they are aware of the modalities of the new tax regime.
BUISNESS PROCESS RESTRUCTURING
With the introduction of GST, the present indirect tax rate structure would be overhauled. The same would also impact the import duty rate structure.Further, the credit mechanism is also proposed to be revamped. At this stage it is proposed that IGST should be completely fungible vis-à-vis IGST, CGST and SGST, whereas there would be no cross utilization of credit between CGST and SGST. However, the fungible credit mechanism can be marred by the recently proposed additional levy of 1% on inter-state supply of goods. This would require the company to rework on their existing costing models so that introduction of GST may not take away the margins at which they are currently operating.
GST is proposed to be levied on supply vis-à-vis sale / manufacture. Given this, Companies would have to necessarily evaluate their supply pattern (and frequency thereof) such as supply to warehouse, job work premises, return of goods etc. as the same may come under the purview of GST. Supply chains will therefore see a radical change. Once the GST contours are finalized, the existing supply chains need to be re-looked and re-structured.
Sourcing, distribution and warehousing decisions which are currently planned based on state level tax rationalization mechanisms instead of operational efficiencies will be reorganized to leverage efficiencies of scale, location and other factors relevant to the business. Location of the warehouse would be more driven by the market forces of demand and supply.
The above is only an illustrative area wherein business re-modelling can be effected. Therefore, all the existing models would be required to be re-looked into, to fashion the most efficient business model. Tax professionals can assist in evaluation and streamlining logistics supply chain, largely from a tax perspective
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